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Determinants of the Price of Land and Rents; Rent Seeking

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Сила микроэкономики: экономические принципы в реальном мире

Калифорнийский университет в Ирвайне

4.6 (оценок: 918) | Зарегистрировано учащихся: 110K

In this course, you will learn all of the major principles of microeconomics normally taught in a quarter or semester course to college undergraduates or MBA students. Perhaps more importantly, you will also learn how to apply these principles to a wide variety of real world situations in both your personal and professional lives. In this way, the Power of Microeconomics will help you prosper in an increasingly competitive environment. Note that this course is a companion to the Power of Macroeconomics. If you take both courses, you will learn all of the major principles normally taught in a year-long introductory economics college course.

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4.6 (оценок: 918)

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GS

Sep 06, 2015

i took an economic course in my university and i couldn't learn anything but i take this online course and is the best solution to learn about economic

RS

Sep 26, 2015

Its really a good for people with no knowledge on economics to understand some basic things which might help them to have a better life economically.

Из урока

Land and Rent

Introduction to Land and Rent; Factor Prices 5:44

How Land is Priced; Rent Versus Economic Rent 4:02

The “Corn Wars” and Theory of Ricardian Rents; Property Rights 7:18

Henry George’s Single Tax Movement; Efficiency of a Land Tax 5:04

Determinants of the Price of Land and Rents; Rent Seeking 7:10

Преподаватели

Dr. Peter Navarro
Professor

Текст видео

[MUSIC]

Let's switch gears now and talk a little bit about why an acre of land to build

a house in rural Mississippi costs so much

less than an acre of land in Carmel, California.

And why an acre of farmland in Iowa costs so

much more than an acre of farmland in New Mexico.

So, here it goes.

Thus far, we have assumed that all units of land are of the same grade.

This is clearly

not so.

Different acres of land vary greatly in productivity.

These productivity differences stem primarily from differences in soil

fertility, and such climatic factors as rainfall and temperature.

These factors explain why Iowa soil is well-suited to corn production,

while the desert wasteland of New Mexico is incapable of corn production.

These productivity differences will be reflected in resource demand.

This figure illustrates the rent differentials that might arise

from differences in the quality of land and its productivity.

Suppose that only corn can be produced on four grades of land, each of which is

available in the same fixed amount. When combined with identical amounts

of capital, labour, and other cooperating resources, the productivity.

Or more specifically the marginal revenue productivity, of each

grade of land, is reflected in the demand curves, D1, D2, D3, and

D4. With D1 being the most productive and D4

being the least productive. The resulting economic rents

for grades one, two and three land will be R1, R2 and R3 respectively.

While grade four land is so poor in quality that

it would not pay farmers to bring it fully into production.

Just as productivity is important in explaining

differences in land rent, so, too, is location.

Other things equal,

business renters will pay more for a unit

of land which is strategically located with respect

to materials, labour, and customers than for a

unit of land that is remote from the markets.

Witness the extremely higher land rents in large metropolitan areas.

And witness the difference in the cost of a scenic

house lot in Carmel, California, which is close to heavily populated.

San Francisco, versus a similar parcel in hot, muggy and remote rural Mississippi.

Now, some final points about land and rent, before

we move on to our next factor of production, labor.

First, although rising economic rents do not increase the quantity of land supply,

rents do have a certain economic function. In particular,

rents serve to allocate a scarce factor among competing uses.

More importantly, the most valuable use will determine the market rent.

For example, did you know that much of land

in New York city was once used for pasture crops?

However, over time, the rising price of land drove the fixed

costs of farming so high that farmers could no longer make a

profit in Manhattan.

These farmers were initially replaced by modest homes, rooming

houses, and factories, and ultimately by sky-scraping office buildings.

Each step in this evolutionary process was propelled, in part, by increasing rents.

Farms and individuals with more valuable uses

for the scarce land offered increasingly high prices

for its use.

In turn, the high rents forced others to

move their farms or households to other locations.

Accordingly, the most valuable use of land will be determined by the market rent.

Second, the concept of rents has been extended by economists to

include any payment to a factor resource above its opportunity cost.

That is, above the amount it would receive in its next best use.

This notion of Quasi-rents is illustrated in this figure.

In this example, an individual represented by point A on the supply curve would

be willing to supply the good at S nod, but the market equilibrium is P nod.

The difference P nod minus S nod/ is his or

her Quasi-rent.

In fact, as we shall discuss further when we get to the

labour market, this quasi-rent situation looks

a lot like the market for superstars.

The demand for these performers is very high, because they

can generate substantial revenues for

their musical, comedic, and athletic talents.

However, the salaries these superstars

command are significantly above the salaries they

might earn in their next best job.

By the way, if this point is still not

clear, just remember when Michael Jordan tried to play

baseball, he not only couldn't hit a curve ball,

he earned a small fraction of his basketball salary.

Third, and related to our second point, the

broadened definition of rent has led economists to the

insight that if individuals could somehow restrict the supply of a

factor, the rent they could receive for the factor would be higher.

Rent seeking is the name given to the restricting

of supply in order to increase the price suppliers receive.

Put another way, rent seeking is an attempt to

create either ownership rights or institutional structures that favour you.

If this sounds a little abstract, you can think about it this way.

Suppose you are the chairman of General Motors,

and you're facing stiff competition from Toyota of Japan.

One solution is to become a more efficient producer.

However, an alternative solution is to use the company's political clout

to lobby the congress to impose a tariff or quota on Japanese auto imports.

This would be an example of rent

seeking by a special-interest group in our economy.

Well, that concludes our discussion of the land market.

In the next lesson, we will look more closely at how labour unions

influence wages, and more broadly at how wages are determined in the labour market.

In the meantime, please remember that economics is not

something to be memorized but rather something to conceptualize.

As you study it, think about it too, your

job and your business might just depend on it.

[MUSIC].

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